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The Unending Search for Monetary Salvation



The Unending Search for Monetary Salvation This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: NBER Macroeconomics Annual 1995, Volume 10 Volume Author/Editor: Ben S. Bernanke and Julio J. Rotemberg, eds. Volume Publisher: MIT Press Volume ISBN: 0-262-02394-6 Volume URL: Conference Date: March 10-11, 1995 Publication Date: January 1995 Chapter Title: The Unending Search for Monetary Salvation Chapter Author: Stanley Fischer Chapter URL: Chapter pages in book: (p. 275 - 298) Stanley Fischer INTERNATIONAL MONETARY FUND1 AND NBER The Unending Search for Monetary Salvation 1. Introduction The monetary problem has been solved, many times. The problem is to find a monetary system or rule that will produce aggregate price stability and stabilize the level of output around its trend. Over the centuries,2 the gold standard, silver, bimetallism, the brick standard, the plywood standard, continuous redefinitions of the monetary unit,3 a variety of monetary rules including the real-bills doctrine, 100% money, constant- money-growth rules, price level or inflation targeting, fixed exchange rates, currency boards, and more, have all been offered as the solution to the problem. Nonetheless, "[t]he truth is, that the purchasing power of money has always been unstable" (Fisher, 1920, p. xxvi). Surveying the literature, the domain of the monetary crank as well as many of the greatest economists,4 one has to ask whether we are looking for the proof of Fermat's Last Theorem, which did after all yield to human ingenuity, or for a perpetual motion machine. A belief in efficient markets suggests it is the latter. But even though there cannot be a This paper was prepared for the NBER Macroeconomics Conference, Cambridge, Massa- chusetts, March 10-11, 1995. Views expressed are those of the author and should not be attributed to the

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